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Supply Function Equilibrium with Asymmetric Capacities and Constant Marginal Costs

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  • Par Holmberg

Abstract

This paper analytically derives a Supply Function Equilibrium (SFE) of a real-time electricity market with multiple firms and asymmetric production capacities. There is a unique SFE, which is piece-wise symmetric when firms have identical constant marginal costs. It is believed that some of the properties of the derived SFE are valid for real-time markets in general. Firms’ capacity constraints bind at different prices (i). Still firms with non-binding capacity constraints have smooth residual demand (ii). Approximating an asymmetric real-time market with a symmetric one, tends to overestimate mark-ups for small positive imbalances and underestimate mark-ups for large positive imbalances (Hi).

Suggested Citation

  • Par Holmberg, 2007. "Supply Function Equilibrium with Asymmetric Capacities and Constant Marginal Costs," The Energy Journal, , vol. 28(2), pages 55-82, April.
    • Handle: RePEc:sae:enejou:v:28:y:2007:i:2:p:55-82
    DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No2-3
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